Vapor Taxes by State, 2022

Today’s map looks at the design of excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es for vaping and tobacco alternatives, which is important in the pursuit of harm reduction from smoking. Higher vapor taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es on products such as E-cigarettes could encourage vapors to go back to smoking cigarettes and will discourage cigarette smokers from switching to vaping products.

Since vaping entered the market in the mid-2000s, it has grown into a well-established product category and a viable alternative to smokers. So far, 30 states and the District of Columbia have imposed an excise tax on vaping products. While vapor taxes may represent an untapped revenue source for states that have yet to impose an excise tax, substantial revenue is unlikely in the short term.

Vapor taxing methods vary. Authorities tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. d on price (ad valorem), volume (specific), or with a bifurcated system that has different rates for open and closed tank systems.

Of those that tax wholesale values, Minnesota tops the list with a 95 percent rate and Vermont follows closely at 92 percent. Delaware, Kansas, Louisiana, North Carolina, and Wisconsin all share the lowest per milliliter rate ($0.05).

The following map shows where state vapor taxes stand as of July 1, 2022. Among the highlights in changes:

• Indiana was the only state to add a tax to vaping products in 2022: 15 percent of the gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” received by retailers.
• California added a retail tax of 12.5 percent in addition to raising its tax to 61.74 percent on wholesale transactions.
• Colorado also increased its tax, from 30 percent to 35 percent on wholesale transactions.

Vapor products can deliver nicotine, the addictive component of cigarettes, without the combustion and inhalation of tar that is a part of smoking cigarettes. While more research relating to the potential harm-reduction qualities of vapor products is needed, for now, the consensus is that vapor products are less harmful than traditional combustible tobacco products. Public Health England, an agency of the English Ministry for Health, concludes that vapor products are 95 percent less harmful than cigarettes.

Given this difference in harm levels, it is important to understand the concept of harm reduction and its relevance for vapor products taxes. Vapor products—even if unhealthy in their own right—are highly attractive as an alternative to smoking. After all, one main reason smokers have a hard time quitting is the addictive nature of nicotine. Harm reduction is the concept that it is more practical to reduce the harm associated with the use of certain goods rather than attempting to eliminate it completely through bans or punitive levels of taxation.

Protecting access to harm-reducing vapor products is intertwined with tax policy because nicotine-containing products are economic substitutes. Low tax rates on vaping encourage consumers to switch from combustibles. High excise taxes on harm-reducing vapor products risk harming public health by pushing vapers back to smoking. A recent publication found that 32,400 smokers in Minnesota were deterred from quitting cigarettes after the state implemented a 95 percent excise tax on vapor products.

If the policy goal of taxing cigarettes is to encourage cessation, vapor taxation must be considered a part of that policy design. For more discussion on the ideal design for vapor taxes and other excise taxes, check out our recent report.

Vapor Taxes by State, 2022

Jurisdiction	State Vaping Tax Rates
Alabama	No Tax
Alaska	No Tax
Arizona	No Tax
Arkansas	No Tax
California	61.74% of wholesale; 12.5% of retail
Colorado	35% of manufacturing price
Connecticut	10% of wholesale price
Delaware	0.05 per mL
District of Columbia	80% of wholesale
Florida	No Tax
Georgia	7% wholesale + $0.05 per mL
Hawaii	No Tax
Idaho	No Tax
Illinois	15% wholesale
Indiana	15% retail
Iowa	No Tax
Kansas	$0.05 per mL
Kentucky	15% wholesale, $1.50/cartridge
Louisiana	$0.05 per mL
Maine	43% of wholesale
Maryland	12% retail (60% if less than 5mL)
Massachusetts	75% of wholesale
Michigan	No tax
Minnesota	95% of wholesale
Mississippi	No tax
Missouri	No Tax
Montana	No Tax
Nebraska	No Tax
Nevada	30% of wholesale
New Hampshire	8% wholesale, $0.30 per mL
New Jersey	$0.10 per mL open; $0.30 per ML closed
New Mexico	12.5% wholesale; $0.50 per cartridge
New York	20% retail
North Carolina	$0.05 per mL
North Dakota	No Tax
Ohio	$0.10 per mL
Oklahoma	No Tax
Oregon	65% of wholesale
Pennsylvania	40% wholesale
Rhode Island	No Tax
South Carolina	No Tax
South Dakota	No Tax
Tennessee	No Tax
Texas	No Tax
Utah	56% of wholesale
Vermont	92% of wholesale
Virginia	$0.066 per mL
Washington	$0.09 per mL open; $0.27 per mL closed
West Virginia	$0.075 per mL
Wisconsin	$0.05 per mL
Wyoming	15% of wholesale

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